Increases in government department spending budgets announced by Chancellor Jeremy Hunt in his Spring Budget this year “have not flowed down" to charities delivering public contracts, analysis has found.

This lack of funding amid the cost-of-living crisis for front line public services carried out by charities has effectively created a £1bn funding cut for the sector in real terms, the analysis adds.

In addition, recovery in charity finances is not expected until 2025 “if then”, it found.

It was announced in the Spring Budget this year that departmental spending would grow at 4%.

But analysis by Charity Excellence in its Public Funding survey found that just 6% of charity sector respondents said a contract funding increase had been made in line with or above inflation. A total of 94% of grants have been cut, of which 39% “were either significantly reduced or not renewed”.

In this financial situation only 5% of charities believe “they will be able to achieve more or significantly more” on the funding they receive. Meanwhile, most (86%) believe they will be worse off.

Among those facing cuts around a third “face significant financial challenges”, “have a serious cash flow problem” and “may have to consider reducing or closing services, making staff redundant, merging or closing their charity”.

The analysis is based on responses from 266 charity representatives. The bulk of their public funding comes from councils (69%), with 14% from central government.

“Grants and foundations are also dwindling and taking much longer to come through if we are successful. It’s a perfect storm of high need, low funding and greater competition for a smaller pot,” said one respondent.

Another said: “Government cannot expect charities to keep taking the hit whilst still expecting them to fulfil critical contracts/roles that keep the country going. There will be mass closures and redundancies, just like during covid, soon if budgets are not given an inflation-busting uplift.”

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